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A Primer on Estate Tax Returns

Published February 11, 2021

When a resident of New York dies with a will in place, the nominated executor must file a petition to probate the will in the Surrogate’s Court to obtain authority to administer the decedent’s estate.  If a resident of New York dies without leaving a proper will, a petition must be filed in the Surrogate’s Court to appoint someone as administrator of the decedent’s estate.  Once the executor/administrator (“fiduciary”) is formally appointed by the court, the fiduciary assumes various responsibilities to administer the decedent’s estate. An administrator typically shares the same responsibilities as an executor, unless the court limits the administrator’s authorities; the differences being the name of the title, and that an executor distributes assets pursuant to the terms of the will, while the administrator distributes assets pursuant to the terms of New York’s intestacy law.

An estate is its own legal entity.  Among other things, one of the fiduciary’s important responsibilities is to determine whether an estate tax return must be filed and whether any estate taxes are owed.  Estate taxes are different and separate from income taxes that may also be owed.  Estate taxes are imposed on estates for the privilege to transfer an inheritance to beneficiaries.  Estate taxes are assessed against all of the decedent’s assets at the time of death and may even include the value of assets the decedent gifted to individuals or transferred into trusts during the decedent’s lifetime.

Not all estates are subject to estate taxes.  The federal estate tax exemption for 2021 is currently $11,700,000.  It is anticipated that President Biden will propose legislation to substantially decrease the federal estate tax exemption.

In New York, the estate tax exemption is $5,930,000 for 2021.  If the value of the net estate assets exceeds the New York exempt amount, then the entire estate is subject to New York estate tax commencing on dollar one.  This is what is known as a cliff tax.

Certain deductions can be taken if estate taxes are due and payable, including:

  • Funeral expenses;
  • Estate administration expenses;
  • Charitable donations at death;
  • Claims against the estate; and
  • Outstanding mortgages and unsatisfied debts.

Federal and state estate tax returns must be filed within nine months of the date of death.  This timeframe can be automatically extended an additional six months with the filing of the appropriate forms with the IRS and New York Department of Taxation and Finance.  However, the deadline for payment of estate taxes cannot be extended.  Fiduciaries only have nine months from the date of death of the decedent to pay estate taxes.  In the relatively short nine-month period after death, the fiduciary must inventory and value the decedent’s assets and calculate if any taxes are owed and, if so, arrange to pay them within nine months of the date of death.  Late estate tax payments are subject to interest and expensive potentially penalties as well.  Substantial penalties can be assessed if the government alleges that the fiduciary substantially undervalued the estate on the estate tax returns.  An extreme example is IRS recently imposing a $6.4 million undervaluation penalty in addition to interest on the estate of rock musician Prince.

A fiduciary may find the considerations of whether estate taxes are due, whether an estate tax return must be filed, and other tax issues to be complex and time-consuming duties.  At Littman Krooks LLP, we have over thirty years of experience helping individuals and families plan for their future.  Our dedicated team of estate planning lawyers commands an in-depth knowledge of both state and federal tax laws and how they impact our clients’ choices.  We work closely with fiduciaries to help them efficiently and confidently fulfill their duties and reduce the stress that the estate administration process can create.  To learn more about how our team of attorneys can assist your family with its unique needs, call (914) 684-2100 to schedule a no-obligation consultation today or click here.

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